Luxury goods to attract higher taxes as FEC endorses new policy

… imposes higher tax on luxury goods

As Nigeria’s government seeks to diversify the economy from dependency on oil, the Federal Executive Council (FEC) on Wednesday approved a revised national tax policy to address low taxation in the country.

Under the new policy, consumers of luxury goods will have to pay a higher Value Added Tax. The percentage is still subject to the approval of the National Assembly.
This was disclosed by the Minister of Finance, Kemi Adeosoun, while briefing journalists after the weekly council meeting chaired by Acting President Yemi Osinbajo.
The new policy, proposed by the Ministry of Finance, seeks to entrench an efficient tax system and address the low level of tax contribution to the Gross Domestic Product (GDP).
Nigeria’s tax contribution to GDP is said to be the lowest in the world, at about 6 percent. Nigeria’s Value Added Tax is also said to be the lowest in the world, at 5percent.
The Minister of Finance set up a National Policy Tax Review Committee in August last year to work on a review.
The final revised policy was then submitted on November 9 last year, after engaging stakeholders in Abuja and Lagos.

“What the committee has shown is that we should look at actually increasing VAT on some luxury items. We have the lowest VAT and while we think VAT should not be increased on basic items, if you are going to drink champagne and you drink Champagne in the UK and VAT is 20% why should it be 5% in Nigeria?
“So they have made recommendations that we should pull out some luxury items and increase VAT on those items immediately.
“ And I think that is a very valid and sensible suggestion which we are going to talk to the National Assembly to see how we can implement it. But as far as basic goods are concerned, no. I believe it is only fair that when you consume luxury goods, you should pay a little bit more. The National Assembly will decide the percentage,” Adeosun said.
This is not the first time efforts are being made to tax luxury items.In November 2014, under former President Goodluck Jonathan’s administration, while receiving briefing of harmonisation of taxes and levies across the country, during a National Economic Council meeting at the Presidential Villa, Abuja, former Minister of Finance Okonjo Iweala announced an aggressive tax administrative in which private jets, yatchs, champagne and a list of the luxury goods would be taxed.
The government had also gone ahead to propose the luxury tax in April 2015, with a target to realise not less than N37.9 billion from private jet owners and travel surcharge on business and first class air tickets.This had been hampered by the lack of legislation.
However, Adeosun, who briefed alongside the minister of Information and Culture, Lai Mohammed and the Minister of State for Transportation,Hadi Sirika, said while the new policy comes into effect immediately, the ministry will approach the National Assembly for final approval for the parts that need legislation.
The policy is expected to guide the operation and review of the tax system; provide the basis for future tax legislation and administration; provide clarity on the roles and responsibilities of stakeholders and standard benchmark on which they will be held accountable.
The new tax policy also states the responsibilities of stakeholders which include taxpayers, the government, revenue agencies, professional bodies, tax practitioners, consultants and agents and the media and civil society.
According to the minister, the main thrust of the tax policy is to establish fundamental principles to guide an orderly development of the Nigerian tax system towards meeting its objectives. It also recognises the primacy of the taxpayers and clearly states their rights and duties. It likewise reinforces the role of the ministry of finance in the formulation, coordination and implementation of tax policy on an ongoing basis.

 

Elizabeth Archibong